Ken Siu
Faculty of Business and Economics, Macquarie University
A PDE Approach for Risk Measures for Derivatives With Regime Switching
Wednesday 19th August 14:05-14:55pm,
Eastern Avenue Lecture Theatre.
In this talk, we shall discuss a partial differential equation
(P.D.E.) approach to evaluate coherent risk measures for derivative
securities in a Markovian regime-switching Black-Scholes-Merton
environment. In such a paradigm, the dynamics of underlying risky
asset are governed by a Markovian regime-switching Geometric Brownian
Motion; that is, the appreciation rate and the volatility in the
log-normal dynamics of the underlying risky asset switch over time
according to the state of a continuous-time, finite-state, Markov
chain. The states of the chain are interpreted as different states of
an economy. The P.D.E. approach provides market practitioners with a
flexible and effective way to evaluate risk measures in the Markovian
regime-switching Black-Scholes-Merton model. We shall demonstrate the
use of the P.D.E. approach for evaluating risk measures for complex
options, such as American options and barrier options.
Joint work with Robert J. Elliott and Leunglung Chan.